Madagascar

The economy expanded by 4.0% in 2016 with 4.5% predicted for 2017 after five years of sluggish growth.

This growth will depend on political stability and enactment of structural reforms.

To speed up industrialisation and promote inclusive growth, the government must push ahead with creating special economic zones (SEZ) and helping micro enterprises to flourish via a financial sector adapted to the needs of start-ups.

Economic prospects are favourable with growth at 4.0% in 2016 and a projection of 4.5% in 2017 driven by timber, agro-industry, construction, tourism and agriculture.

Results will depend on macroeconomic stability efforts, an improved business climate to attract private investment and better governance, especially in the state water and electricity company Jirama (Jiro sy rano malagasy). Economic progress also depends on the ability of the government and others to create political stability. Medium-term risks include recurrent climate shocks (drought in the south, floods in the north). Annual inflation should remain steady at around 7.0% as long as world oil prices hold up and the central bank’s new statute helps it to be more independent in monetary policy and financial strategy.

Social conditions are still marred by poverty, malnutrition and growing inequality, stoked by an annual 2.8% population growth. The population is quite young, with 76.2% under 35. The labour market is characterised by under-employment and by precarious or low-paid jobs (four out of five workers). Some 400 000 youths join the labour market each year.

Industry provides 14.8% of GDP, much less than in many other African states, but the country is teeming with micro and small enterprises, mostly in the informal sector. To achieve the structural transformation required for more inclusive economic growth, the government needs to combine its policy of setting up special economic zones (SEZs) with encouraging entrepreneurs, especially young ones. This calls for an institutional and regulatory framework to support micro enterprises along with productivity incentives, especially appropriate and accessible financial services, as well as the encouragement of innovation to strengthen ties between firms and industrialisation, especially through funding facilities adapted to the needs of start-ups.

THEMATIC SECTION

Libya

Authors : Yasmine Eita

Real GDP growth was -8.1% in 2016, against -10.1% the previous year, due to a slight improvement in oil production, and is expected to recover to -4.9% in 2017 following exemption from OPEC’s supply cap, the recapture of eastern ports and reopening of oil pipelines.

A persistent struggle for power has prevented the rival governments from converging towards common ground.

Political instability, humanitarian crisis and security issues continue to hinder efforts to re-establish control over the economy and most national strategies, including those related to industrialisation and entrepreneurship, have remained on hold.

Economic growth contracted by 8.1% in 2016. However, the projected real GDP growth rate is estimated at -4.9% and -3.0% in 2017 and 2018, respectively, due to the projected rise in oil prices and the anticipated recovery of the crude-oil production to around 900 000 barrels per day (bpd) in 2017 and 2018 from under 400 000 bpd in 2016.

In mid-December 2015, the Libyan Political Agreement (LPA) was signed in an attempt to end the political crisis that has been dragging on since the summer of 2014. The LPA led to the formation of a Presidential Council (PC) at the head of an interim Government of National Accord (GNA) in Tripoli. However, the cabinet proposed by the GNA failed to be approved in the House of Representatives (HoR), based in Tobruk. Consequently, political and security instability in Libya have continued to affect the economy. A considerable decrease in oil production and a high degree of volatility in oil prices have affected both the current account and budget revenue. Contrary to previous years, the 2016 budget was not approved. According to recent updates, the GNA and the Central Bank of Libya (CBL) agreed on a 2017 emergency budget that has, however, been rejected by the HoR. Yet, to control expenditure amidst reduced oil revenues, the CBL continues to disburse funds only for wages and essential subsidies, while unemployment remains high, reaching 19.2 % in 2016.

Plans to implement industrial and entrepreneurship strategies have failed. Limited institutional co-ordination within the Libyan public sector and a fall in oil revenues have negatively affected government revenue collection, hampered budget revenues and fiscal management and delayed efforts and projects to diversify the economy away from the oil sector towards more general industrialisation.

The economic outlook in 2017 and 2018 largely depends on political unity and the extent of improvements in security. On the assumption that progress will be achieved, the economy will recover slowly, especially in the oil sector. Prospects also hinge on the outcome of efforts to diversify the economy. Significant reform programmes, enhanced ability to mobilise external resources and diversification of the economy could – if conditions allow – release growth potential and produce important economic changes for Libya.

THEMATIC SECTION

Liberia

Weak commodity prices continue to weigh on Liberia’s economy, which contracted by an estimated 0.5% in 2016. Economic growth is expected to strengthen in the medium term, reaching around 4% in 2017.

The government faces the challenge of staying focused on development priorities during an election year, while also contending with weak growth weighing on revenues, limited borrowing capacity, and added expenditure pressures linked to security and the election.

The government is pursuing a number of measures to help diversify the economy, increase productivity and entrepreneurship, and encourage value addition and investment in the agriculture sector.

Liberia continues to grapple with lower commodity prices, which have led to a third straight year of near-zero growth in 2016. The economy contracted by an estimated 0.5% in 2016. With limited growth expected in the iron ore and rubber sectors in the coming years, the government seeks to diversify the economy by increasing productivity in the agriculture sector. The economy can expect an uptick in growth to around 4.0% in 2017, largely due to increased production of gold and iron ore, investment projects, and agriculture expansion. Nonetheless, growth is expected to remain below previous levels into the medium term.

Fiscal policy continues to be strained by low growth and is facing further pressures due to election and security expenditure. With the withdrawal of the United Nations peacekeeping force, the government is taking on full security responsibilities. Combined with the elections in October 2017, this could increase uncertainty. Growth in public revenue has been low and borrowing space has tightened, so the government faces a delicate task, in an election year, in balancing expenditure and borrowing with development priorities. It is also critical to maintain momentum in public financial management (PFM) reforms into a new administration.

Investments in power generation and electricity access are gradually coming online, which should begin to gradually alleviate a significant constraint to the business environment. However, increasing capacity in the energy sector will be critical for sustainability and further improvements. Moreover, several key transportation corridors have been paved. These improvements notwithstanding, the business environment, which ranks very low in international comparisons, continues to impede competition, productivity and growth. The government has started work on addressing business environment constraints, attracting investment, and improving value addition in key agricultural value chains. Further efforts will be needed to raise incomes and address Liberia’s 54% poverty rate.

THEMATIC SECTION

Lesotho

Authors : Asha P. Kannan, Edirisa Nseera

The economy is on a recovery trajectory with 2016 GDP growth estimated at 3.1%, largely driven by a booming tertiary sector and mining investment, while the outlook is for higher growth in 2017 and 2018.

In spite of the boost in economic growth, high unemployment and inequality have intensified poverty to 56.2% of the population, calling for a more aggressive response to realise more inclusive development outcomes.

The existing policy linking entrepreneurship and industrialisation, a key instrument to create jobs, could be supported by a multitude of factors including technological entrepreneurship that is central to the whole process of meaningful structural transformation.

Lesotho‘s gross domestic product (GDP) growth, at 3.1% in 2016 relative to 2.8% in the past year, is showing signs of recovery as a result of the booming tertiary sector, ongoing investment in mining and steady growth in the electricity and water sector. In the medium term, growth is expected to further improve to 3.5% and 4.6% in 2017 and 2018, respectively.

However, poverty, inequality, and unemployment remain major development challenges facing Lesotho in spite of high literacy rates and high investment in social sectors over the years. The national poverty head count ratio, at purchasing power parity (PPP) USD 1.25 a day, has increased and currently stands at close to 56.2%. Rural areas harbour the majority of the poor. Over 50% of the population remains unemployed and inequality, as measured by a GINI coefficient of 0.5, is considered unacceptably high.

The participation of the private sector and building entrepreneurship meant to spur industrialisation has been enshrined in the country’s National Strategic Development Plan (2012-2017). Its objective is to transform the skills development institutions and to improve the skills and innovation base of the economy. In spite of the existing policy link between entrepreneurship and the industrialisation framework, enhancing this relationship is still challenged by a multitude of factors. These factors include among others: skills’ mismatch; lack of skills transfer by foreign entrepreneurs for fears of domestic entrepreneurs imitating their products; lack of entrepreneurship skills to diversify products; low technological entrepreneurship that is central to the whole process of meaningful structural transformation; and the lack of opportunities fostered through access to finance, information flows and infrastructure.

This AEO report highlights the need to aggressively tackle unemployment, poverty and inequality through the adoption of more inclusive growth policies. It also proposes that the government’s National Strategic Development Plan (NSDP) framework, which seeks to enhance the skills base, technology adoption and foundation for innovation, may provide incentives to lead companies to strengthen chain linkages with local, emerging entrepreneurs to bolster supply. It also proposes more dialogue with existing entrepreneurs on how to enhance skills development and transfer between foreign and local entrepreneurs.

THEMATIC SECTION

Kenya

Authors : Julius Chokerah, Walter Odero, Wilmot Reeves

Real GDP growth increased to an estimated 6.0% in 2016, up from 5.6% in 2015, with the expansion projected to continue in 2017 and 2018, supported by large investments and growth in the service sector.

A stable macroeconomic environment with single-digit inflation (averaging 6% in 2016) prevailed as political campaigning for the August 2017 general elections got underway.

Kenya has sophisticated entrepreneurship by regional standards but could increase its global footprint through increased investments in information technology.

GDP growth improved to 6.0% in 2016, up from 5.6% in 2015, driven by construction, manufacturing, finance and insurance, information and communication technology (ICT), and wholesale and retail trade. The outlook is positive, with growth projected at 6.1% in 2017 and 6.5% in 2018. Consumer Price Index (CPI) inflation projections remain slightly above 5% over the same period. Projections for the short to medium term are based on the following assumptions: increased rainfall to enhance agricultural production; a stable macroeconomic environment; continued low international oil prices; continued stability of the Kenya shilling (KES); improved security as a boost to tourism; and continued reforms in governance and justice.

Political activity in 2016 was marked by campaigning for the August 2017 general elections. Two coalitions emerged, one centered around the ruling Jubilee Party and the other around the main opposition grouping, the National Super Alliance (NASA). The opposition parties led a spirited campaign calling for overhaul of the electoral infrastructure. As a result, electoral legislation was amended to provide for a revised voter register and new electoral timelines and funding arrangements. All commissioners on the Independent Electoral and Boundaries Commission were replaced in January 2017.

Kenya has sophisticated entrepreneurship by regional standards but could increase its global footprint through increased investments in information technology (IT). The country aims to have a robust, diversified and competitive manufacturing sector to help its transformation into an industrialised middle-income economy by 2030. The overall goal for the industrial sector is to increase its contribution to GDP by at least 10% per annum and propel the country towards becoming Africa’s industrial hub.

THEMATIC SECTION

Guinea-Bissau

Projected real GDP growth of about 5% in 2017 and 2018 is expected to strengthen the posttransition recovery but political uncertainty remains an obstacle to a tangible economic take-off.

Economic and social prospects remain fragile because they depend strongly on the cashew sector, on the continuity of reforms undertaken and on the political environment.

The industrialisation of Guinea-Bissau requires basic infrastructures to be rebuilt, especially for transport and energy, which cannot currently support the blossoming secondary sector; it also requires an improved business climate and stronger human capital.

During the year that followed the return to constitutional order in 2014, Guinea-Bissau experienced positive momentum. Since then, however, it has gone through a period of uncertainty. Between June 2015 and December 2016, four prime ministers were dismissed. The ensuing institutional deadlock prevented parliament from meeting in 2016. Despite the delicate political context, gross domestic product (GDP) grew by an estimated 4.9% in 2016, driven by a good agricultural season. Economic performance thus remains strongly exposed to exogenous shocks.

The recovery that began following the return to constitutional order is continuing, aided by an exceptional year for cashew sales and a notable expansion in the harvest of food crops (8.9%). Political uncertainty has harmed growth potential, however. The government has in fact contributed negatively to GDP (-0.5%). Furthermore, the political climate does not favour investment, which has also had a negative impact on the potential for growth and the quality thereof. Additionally, 2016 saw a freeze on budgetary support from donors due to a secretive bank rescue by the authorities in 2015, at a cost of XOF 34.2 billion (CFA Franc BCEAO), or 5.6% of the GDP. Budgetary support is expected to be available again in 2017, based on commitments made by the authorities to undo the bank rescue. Growth forecasts for 2017 and 2018 are 4.8% and 5.0% respectively, assuming that current political tensions are resolved, rainfall is equal to that of 2016, cashew prices hold up, investment in phosphates begins (production is due to commence in 2019) and reforms continue in the right direction.

Certain measures implemented in 2014-15 to reform public finance management have continued to bear fruit, particularly in the fiscal sector. In 2017 and 2018, planned reforms regarding revenue, such as a new single invoice with a tax identification number, should strengthen prospects and create additional revenue. Expenditure, meanwhile, was higher than in 2015, due in particular to domestic debt repayments. The tax-GDP ratio stalled at 9.6%. The budget balance was -4.0% of GDP and the primary balance -3.3%. Finally, against the backdrop of recovering demand, inflation was an estimated 2.6%.

The social and human development context have not changed significantly since last year and the overall situation remains worrying. Guinea-Bissau has one of the lowest human development indicators (HDI). Significant weaknesses still exist, especially as regards women and the rural population. No budget was approved for 2016, so no efficient plans could be made for social sectors. Because of fiscal difficulties, chronic underinvestment is expected to continue, preventing any meaningful improvements in terms of human development.

THEMATIC SECTION

Guinea

Authors : Olivier Manlan, Idrissa Diagne, Mamadou Sarifou Diao Diallo

In 2016, growth bounced back to 4.9% thanks to political appeasement and good performance in mining and agriculture after two years of weak growth (1.1% in 2014 and 0.1% in 2015) mainly due to the Ebola epidemic.

Social cohesion and reducing inequalities have remained pressing challenges in a context of endemic poverty, which is worse in rural areas.

Turning the authorities’ vision for change into economic and social progress is encumbered by a systemic shortage in the administration’s capacities and piecemeal, poorly co-ordinated implementation of decisions and actions.

In 2016, the end of the Ebola epidemic brought the country out of isolation and broadened its export opportunities. National dialogue in October 2016 resulted in a political agreement, easing the general climate. The 2012 macroeconomic programme supported by the International Monetary Fund (IMF) Extended Credit Facility (ECF) and backed by the country’s other partners reached a satisfactory conclusion. For the first time in its history, the country was able to conclude a programme with the IMF.

The slowdown in activity that had marked the three previous years was reversed. In 2016, growth stood at an estimated 4.9%, up from 0.1% in 2015. The national economic and social development plan (PNDES) 2016-20 is focused on governance, transforming the economy, developing human capital and sustainable management of the country’s resources. The PNDES projects median growth at 6.5% for 2016-20, driven by recovery in the industrial sector (23.6% of gross domestic product [GDP]) through revitalised activity in the mining sub-sector (12.3%).

Reforms were pursued, though at a slower pace due to the human and financial effort needed to fight Ebola. This covered the organic law relating to finance (Loi organique relative aux lois de finances) and the legal frameworks for financial and public sector governance, plus the regulatory framework of public-private partnership (PPP) projects. An audit of public procurement confirmed the existence of poor practices in infrastructure investment expenditure (e.g. on roads, energy, etc.) in 2014 and 2016, showing that less than 14% of public procurement had complied with the rules governing it. Along with the implementation of measures to strengthen public procurement procedures, a more careful and rigorous oversight of expenditure in 2016 has helped to streamline infrastructure spending.

The PNDES has placed infrastructure insufficiency and deterioration, as well as its financing, at the core of policy discussions. The government has asked its partners to increase their concessional funding of infrastructure, but as potential financing is expected to be limited, it has also stressed stepping up reforms aimed at mobilising domestic resources and resorting to more non-concessional loans. As regards the latter, it has been generally agreed that the spiral of over-indebtedness must be avoided. Before an advisory group is set up in the last quarter of 2017 on the funding of the PNDES 2016-20, the government plans to negotiate a new programme backed by the IMF and its other partners, which would include more non-concessional debt to finance the ambitious PNDES infrastructure programme.

THEMATIC SECTION

Ghana

Authors : Radhika Lal, Eline Okudzeto, Kordzo Sedegah

Real GDP growth is estimated to have slowed for the fifth consecutive year due to tightened monetary and fiscal policies, among other factors, but is projected to recover in 2017 and 2018 if the non-oil economy improves and as new hydrocarbon wells come on stream.

The December 2016 elections resulted in the transition of political power to the opposition political party and some changes are to be expected in policy direction, including emphasis on measures to unleash private sector development.

While industry is the second largest contributor to Ghana’s GDP, its performance could be strengthened if industrial support policies and programmes were better targeted and measures to improve access to finance and tackle constraints related to skills and infrastructure could be prioritised.

Gross domestic product (GDP) growth is estimated to have slowed for the fifth consecutive year, from 3.9% in 2015 to 3.3% in 2016 as a result of the implementation of tight fiscal and monetary policies in the context of the International Monetary Fund (IMF) Extended Credit Facility (ECF) programme, and technical issues related to oil production. Growth is projected to recover to 7.1% and 8.0% in 2017 and 2018 respectively assuming restoration of energy supply, new hydrocarbon wells coming on stream and the timely resolution of technical issues that led to disruptions in the Jubilee oil and gas field in 2016. The growth is expected to be stronger if macroeconomic fundamentals improve, and impact positively on the non-oil economy.

The authorities successfully concluded the fourth review of the IMF ECF despite some delays in meeting some of its performance criteria. However, provisional estimates indicated Ghana would miss its year-end fiscal deficit target with the deficit estimated at 8.7% of GDP, above the target of 5.3%. This raises concerns about Ghana retrogressing on its fiscal adjustment programme. The main policy priorities in 2017 will be to ensure that the fiscal consolidation programme is on track, policies and measures to foster a revival of private sector investment and foreign direct investment (FDI) are adopted, and that the supply and governance issues affecting the energy sector are speedily addressed.

Ghana’s December 2016 elections led to the transfer of political power to the opposition political party, the New Patriotic Party, which won the presidential election with 53.9% of the vote while the incumbent National Democratic Congress obtained 44.4%. The transfer of power after one term of the incumbent appears to be a divergence from the pattern, under which a change occurs after two four-year terms, which has been the case since the initiation of the 4th Republic in 1992.

Ghana’s industrial policy dates from 2011. In 2016, a “Made in Ghana” policy was launched. The 2017 budget of the new government also includes a number of policy proposals and initiatives including a strengthened focus on local content, a new National Industrial Revitalisation Programme with a stimulus package for industry, a National Entrepreneurship and Innovation Plan (NEIP) and a “One District, One Factory” proposal to promote industrialisation from the ground up. The implementation of the 2011 industrial policy via the Industrial Sector Support Programme (ISSP, 2011-2015) was affected by the long-standing public sector resource crunch, the high cost of credit and limited access to start-up financing, and land and energy challenges. The new programme proposals seek to tackle many of these issues. To date, Ghana’s exports have also been heavily dominated by a few commodities which are vulnerable to developments in the world market, while value addition in mineral and agricultural value chains remained subject to various constraints. However, a dynamic entrepreneurial tech sector has been emerging. This could get a further boost from the NEIP when it is implemented. The NEIP is expected to serve as the primary vehicle for providing integrated support for early stage (start-ups and small) businesses, focusing on the provision of business development services, business incubators, and funding for youth-owned businesses. The government’s medium-term objectives also include developing high-quality education, entrepreneurship and job skills, which is to be welcomed.

THEMATIC SECTION

Gambia

Growth declined to 2.1% in 2016 due to policy slippages and electoral uncertainty, but is expected to rebound to 3.5% in 2017 and 4.8% in 2018 following a peaceful political transition.

The outlook depends on the ability of the new administration to carry out a smooth and fast transition in order to make needed reforms and set the basis for structural transformation.

Industrial policy suffers from a lack of core infrastructure, technological innovation and the lack of regional integration needed for the economy to reap the benefits of a much larger market.

As a small and open economy relying on agriculture and tourism, Gambia remains highly vulnerable to climate change and external shocks. Policy inconsistencies, high spending and unfavourable weather conditions in recent years have negatively affected economic potential and fiscal performance. In addition, Gambia is characterised by high debt and high interest rates. Growth for 2016 is estimated at 2.1%, down from 4.4% in 2015. This is mainly explained by policy slippage on reforms, the crowding out of private investment, an average agricultural season and a year-end political scenario that tamed the tourism season. The outlook for 2017 and 2018 looks positive, with growth rates projected at 3.5% and 4.8% on the back of a peaceful political transition.

The election of President Adama Barrow in December 2016 led to Gambia’s first democratic executive change since independence. After the incumbent initially declined to leave power, mediation and military pressure from fellow West African countries led to his peaceful departure. The outlook for the country is thus greatly dependent upon the ability of the new administration to carry out a smooth and fast transition, shore up finances, regain the confidence of partners, stabilise the country to bring back tourists and set the basis for economic transformation. On the fiscal side, rebuilding fiscal buffers should become a top priority, notably through improved wage bill management, tightened control of spending, review and restructuring of public-sector enterprises and control of domestic borrowing.

Although Gambia has witnessed a degree of structural transformation over the past ten years, the country has not significantly increased the industrial sector’s share in the economy (15% in 2013, up from 12% in 2004), nor has it increased manufacturing value added. Hurdles to industrialisation include poor regional integration, the absence of reliable and cheap energy, and sub-optimal infrastructure and training. Similarly, entrepreneurship has yet to take off. Barriers include a shortage of entrepreneurial skills and structural gaps in the business environment including difficult access to finance and land, high taxes and sub-optimal administrative procedures.

THEMATIC SECTION

Ethiopia

Real GDP growth slowed to 8.0% in 2015/161 from 10.4% last year and is projected to remain stable at 8.1% in 2016/17 and 2017/18.

Public protests disrupted the nation in 2016 in the Oromia and Amhara regions, with the protestors citing concerns about political and economic marginalisation. The authorities declared a six-month state of emergency in October 2016, enacting a variety of measures to restore peace.

Ethiopia’s national development plans place emphasis on promoting export-led industrialisation with a focus on light manufacturing. However, the contribution of the industrial sector to GDP, employment and exports remains low.

Real GDP grew by 8.0% in 2015/16, a slowdown from the 10.4% registered in 2014/15. The services and industry sectors led growth during this period. Growth in the agriculture sector was negatively affected by the El Niñoinduced drought. For 2016/17 and 2017/18, investments in energy and transport infrastructure; on-going reforms to spur industrialisation, such as the development of industrial parks; and continued progression in services are expected to lead growth. Agriculture is projected to rebound and grow steadily.

Headline inflation is projected to remain consistent with the central bank’s (National Bank of Ethiopia’s [NBE]) price stability objective of single digit inflation in 2016/17. Inflationary pressures are expected to fall due to subdued food prices. Import-intensive public infrastructure investments are expected to continue in the near term as the government sustains the implementation of energy and road transport infrastructure projects to improve the businessenabling environment. The current account deficit is projected to remain in double digits in the short term as export earnings continue to account for about 30% of imports. Uncertainty about international commodity prices and weak global demand are key downside risks.

The 2004 Industrial Development Strategy guides Ethiopia’s ambition of achieving agriculturaland export-led industrialisation. However, the share of the industrial sector in GDP remains low, averaging 12.2% between 2006/07 and 2015/16. The expansion in industry has been led by construction, while the contribution of manufacturing to GDP remains small at 5.4% in 2015/16. The second Growth and Transformation Plans (GTP II) 2015/16–2019/20 prioritises export-led industrialisation. The approach to promoting industrialisation under GTP II is consistent with the Inclusive and Sustainable Industrial Development (ISID) framework. Ethiopia, as one of the three pilot countries under this framework, has developed a Programme for Country Partnership (PCP) in collaboration with other partners, including the United Nations Industrial Development Organization (UNIDO). The PCP is a vehicle for implementing the ISID framework. The Micro and Small Enterprises Development Strategy (2011) was developed to increase the contribution of Ethiopia’s entrepreneurs to the country’s industrialisation ambitions. This strategy focuses on improving the business-enabling environment, access to finance and market linkages. Measures to promote private sector development have also been implemented such as privatisation of state-owned enterprises, business regulatory reforms and infrastructure development.